Uncertainty Reigns As Industry Adjusts To Yet More Changes

FORECAST 2004: TECHNOLOGY/TELECOM

January 12, 2004|By Christopher Boyd, Sentinel Staff Writer

Making smart choices in the telecommunications industry has never been harder than during the past three years. As a boom gave way to a punishing bust, technological and regulatory changes conspired to demolish even the best-laid business plans.

For Mike Gallagher, chief executive officer of FDN Communications in Orlando, uncertainty is part of daily business. His company, formed in 1999 to provide telecom services to small and midsize businesses, has managed to grow as competitors collapsed and some of the largest companies in the industry suffered giant setbacks.

Even as the economy rebounds, uncertainty continues to make telecom a dicey business as "disruptive" technological changes sweep the industry.

"We've never been in a better financial position coming into a year, but I'm very concerned about the disruptive technology that is upon us," Gallagher said.

FDN formed a subsidiary late last year to adjust to one of the biggest changes -- the arrival of a technology that turns computer broadband connections into voice telephone lines. The subsidiary, Broadline Communications, offers the service, called voice over IP, as an alternative to traditional local phone service.

"I think that in three or four years one-third of the people will still have residential land lines, one-third will use wireless phones and one-third will use voice over IP," Gallagher said. "What we're doing with the new company is going after the early adopters."

New technology is just one challenge. Last year the Federal Communications Commission began allowing phone customers to take their numbers with them when they move between wireless carriers and, to a lesser extent, between wired and wireless carriers.

In addition, regional phone companies throughout the country, including BellSouth Corp., have won the right to offer long-distance service, opening the way for them to essentially become one-stop telecom-service providers.

Philip Richards, a telecom analyst with The Insight Research Corp. in Parsippany, N.J., said the industry is likely to regain strength during an economic recovery, but he said the uncertainties overshadow the chance that bottom lines will rise.

"It certainly looks like things will improve, but chaos could be a better description of what kind of year this will be," Richards said. "The use of cell phones to displace home-phone lines is a trend, and high-speed Internet access has obviated the need for a second phone line. The whole thing still has to sort itself out. It will be an interesting year, but I still can't say who the winners and losers will be."

Richards said telecom providers are caught in the same trap as computer makers -- as their product becomes faster and more efficient, prices continue to fall.

Long-distance service offers a case in point. After the breakup of the Bell System in the early 1980s, long-distance companies such as AT&T and Sprint were golden. But as competition heated up, the cost of a long-distance call declined. Today, consumers can choose from a plethora of inexpensive long-distance packages, and the business has lost its luster for providers.

"With all the change," Richards said, "I can confidently say that I wouldn't want to be an investor in this business right now."